U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter period ended June 30, 2000
-------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
OVM INTERNATIONAL HOLDING CORP.
(Exact Name of Small Business Issuer as specified in its Charter)
Nevada 88-0344135
(State or other Jurisdiction (IRS Employer
of incorporation) Identification No.)
West 516 Sprague Avenue
Spokane, Washington 99204
(Address of Principal Executive Office)
(509) 744-8590
(Issuer's Telephone Number, Including Area Code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such requirements for the past 90 days.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 12,050,000 shares of common stock,
$0.0001 par value, as of August 14, 2000.
Traditional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 2000 1999 2000
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
NET SALES 40,447 45,065 4,885 61,050 80,848 7,373
COST OF SALES (33,765) (25,808) (4,078) (45,271) (44,971) (5,467)
-------- -------- ------- ------- ------- -------
GROSS PROFIT 6,682 19,257 807 15,779 35,877 1,906
SELLING AND ADMINISTRATIVE
EXPENSES (9,502) (12,145) (1,148) (18,470) (23,786) (2,231)
INTEREST EXPENSES (279) (947) (34) (1,219) (1,890) (147)
INTEREST INCOME 130 45 16 138 130 17
OTHER INCOME/(EXPENSES), NET (1,492) 256 (180) (1,522) 653 (184)
----------- ----------- ---------- ---------- ------------ ----------
INCOME/(LOSS) BEFORE INCOME
TAXES (4,461) 6,466 (539) (5,294) 10,984 (639)
INCOME TAXES (2,813) (1,066) (340) (2,885) (1,810) (349)
----------- ----------- ---------- ---------- ------------ ----------
(7,274) 5,400 (879) (8,179) 9,174 (988)
MINORITY INTERESTS 2,024 (1,802) 245 2,142 (3,062) 259
----------- ----------- ---------- ---------- ------------ ----------
(5,250) 3,598 (634) (6,037) 6,112 (729)
EQUITY IN EARNINGS OF EQUITY
INVESTEE 2 82 -- 13 117 1
----------- ----------- ---------- ---------- ------------ ----------
NET INCOME/(LOSS) (5,248) 3,680 (634) (6,024) 6,229 (728)
=========== =========== ========== ========== ============ ==========
BASIC AND DILUTED EARNINGS/(LOSS)
PER SHARE (0.44) 0.31 (0.05) (0.50) 0.52 (0.06)
=========== =========== ========== ========== ============ ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000
=========== =========== ========== ========== ============ ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
2000 1999 2000
---- ---- ----
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 9,888 22,859 1,194
Accounts receivable 33,743 33,804 4,075
Inventories 2 19,256 32,584 2,326
Prepayments, deposits and other 12,124 9,313 1,464
Due from related parties 38,891 36,360 4,697
Assets held for sale - 6,609 -
---------- ---------- ----------
Total current assets 113,902 141,529 13,756
Property, machinery and equipment, net 3 34,643 16,143 4,184
Investments 8,616 8,332 1,041
Other assets:
Deferred asset 1,989 4,661 240
Staff housing loans 868 2,831 105
Intangible assets 3,284 3,352 397
---------- ---------- ----------
Total assets 163,302 176,848 19,723
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 9,000 28,000 1,087
Current portion of long term debt 510 360 62
Current portion of capital lease 256 - 31
Accounts payable 31,488 25,529 3,803
Advance payments by customers 7,110 7,775 858
Other payables and accrued liabilities 9,499 15,062 1,147
Taxes payable 1,550 5,873 187
---------- ---------- ----------
Total current liabilities 59,413 82,599 7,175
Long term debt net of current portion 540 690 65
Capital lease obligations 17,934 - 2,166
---------- ---------- ----------
Total liabilities 77,887 83,289 9,406
---------- ---------- ----------
Minority interests in consolidated 30,294 32,436 3,659
---------- ---------- ----------
Shareholders' equity:
Common stock, 40,000,000 shares, par
US$0.0001 authorized; 12,050,000 shares,
issued and outstanding 10 10 1
Additional paid-in capital 30,795 30,795 3,720
Retained earnings 24,233 30,257 2,927
Accumulated other comprehensive income 83 61 10
---------- ---------- ----------
Total shareholders' equity 55,121 61,123 6,658
---------- ---------- ----------
Total liabilities and shareholders' equity 163,302 176,848 19,723
========== ========== ==========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Additional Retained Comprehensive
Stock Paid-in Earnings Income Total
-------- -------- ---- -------- ------------- ----------
RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 10 30,795 30,257 61 61,123
Comprehensive income:
Net loss for the period - - (6,024) - (6,024)
Currency translation - - - 22 22
--------- ---------- ---------- ---------- ----------
Total comprehensive income (6,002)
----------
Balance at June 30, 2000 10 30,795 24,233 83 55,121
========= ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
2000 1999 2000
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
Net cash provided by/(used in) operating activities (4,836) 7,784 (584)
------- ------- -------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (7,011) (1,141) (847)
Disposal of property, machinery and equipment -- 7 --
------- ------- -------
Net cash used in investing activities (7,011) (1,134) (847)
------- ------- -------
Cash flows from financing activities:
Repayments of notes payable (1,000) (2,000) (121)
Increase of long term related party loan -- 288 --
Principal payments under capital lease obligations (124) -- (15)
------- ------- -------
Net cash used in financing activities (1,124) (1,712) (136)
------- ------- -------
Net increase/(decrease) in cash and cash equivalent (12,971) 4,938 (1,567)
Cash and cash equivalent, at beginning of period 22,859 25,419 2,761
------- ------- -------
Cash and cash equivalent, at end of period 9,888 30,357 1,194
======= ======= =======
Non-cash investing activities:
Property, machinery and equipment acquired
through capital lease obligations 18,314 -- 2,212
======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and six month
periods ended June 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
For the convenience of the reader, amounts in Renminbi ("RMB") have
been translated into United States dollars ("US$") at the rate of
US$1.00 = RMB8.28 quoted by the People's Bank of China as at June 30,
2000. No representation is made that the RMB amounts could have been,
or could be, converted into US$ at that rate.
2. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
RMB RMB
<S> <C> <C>
Raw materials 4,809 9,676
Work in progress 949 10,722
Finished goods 13,498 12,186
---------- ----------
19,256 32,584
========== ==========
</TABLE>
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
RMB RMB
<S> <C> <C>
At cost:
Buildings 11,689 741
Plant and machinery 33,901 25,236
---------- ----------
45,590 25,977
---------- ----------
Accumulated depreciation:
Buildings 256 41
Plant and machinery 10,691 9,793
---------- ----------
10,947 9,834
---------- ----------
Property, machinery and equipment, net 34,643 16,143
========== ==========
</TABLE>
6
<PAGE>
4. MATERIAL AGREEMENTS
In January 2000, the Company entered into various agreements with
Liuzhou OVM Joint Stock Company Limited (the "JV Partner"), which has
resulted in the following:
a. Termination of the Company's lease of land, buildings, property
and equipment from the JV Partner.
b. Allocation of Company personnel to the JV Partner resulting in
the reduction of Company personnel and financial assets related
thereto.
c. Termination of the Company's rights to use certain intangible
assets, including the "OVM" trademark.
d. Transfer of approximately 1/3 of the Company's inventories to
the JV Partner at normal selling prices excluding value added tax
at 17%.
e. Transfer of certain fixed assets included in Assets held for
Sale at December 31, 1999.
On December 11, 1999, as a result of the pending termination of the
Company's lease of land, buildings, property and equipment from the JV
Partner, the Company entered into a new lease agreement with an
unaffiliated third party for the lease of land and buildings in which
the Company's main operating facilities are located. The term of the
lease is 25 years, beginning January 1, 2000, with annual rent of RMB1
million (US$121,000) for the first five years and escalating at 1% each
year thereafter. In addition, on December 12, 1999, the Company entered
into a lease with another unaffiliated third party for the lease of
production and transportation equipment. The term of the lease is 20
years beginning January 1, 2000, with annual rent of approximately
RMB767,000 (US$93,000). Both of the above leases are to be treated as
capital leases.
In January 2000, approximately 300 members of the Company's employees'
left the Company and became employees of the JV Partner. Certain assets
which were included in prepayments, deposits and other receivables,
deferred assets and staff housing loans and amounted to RMB787,000
(US$95,000), RMB3,254,000 (US$393,000)and RMB2,034,000 (US$246,000),
respectively related to these employees were transferred to the JV
Partner in the second quarter of 2000.
Beginning in January 2000, the Company's products are marketed under a
new trademark ("HVM"), which is in the process of being registered by a
related company, Shenzhen Hong Da Technical Company Limited ("Hong
Da"). Hong Da has granted the Company the exclusive right to use the
HVM trademarks without cost.
The Company sold certain inventories and buildings, plant and equipment
to the JV Partner in the second quarter of 2000 at their carrying
values of RMB15,041,000 (US$1,817,000) and RMB9,515,000 (US$1,149,000),
respectively.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET SALES AND GROSS PROFIT. Net sales for the first half of fiscal 2000
decreased by RMB19,798,000 (US$2,391,000) or 24.5% to RMB61,050,000
(US$7,373,000), compared to RMB80,848,000 (US$9,764,000) for the corresponding
period in 1999. The decrease was mainly due to the Company's relocation to new
production and office facilities in early 2000 and the production facilities are
not yet operating at full capacity. The Company also experienced competition
from its JV Partner.
Gross profit decreased by RMB20,098,000 (US$2,427,000) or 56.0% to
RMB15,779,000 (US$1,906,000) for the first half of fiscal 2000 compared to
RMB35,877,000 (US$4,333,000) in the corresponding period of the prior year. The
decrease was due to the decrease in sales during the current period and the sale
of certain inventories to the JV Partner, amounting to RMB15,041,000
(US$1,817,000), at their carrying values.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the first half of fiscal 2000 decreased by RMB5,316,000
(US$642,000) or 22.3% to RMB18,470,000 (US$2,231,000), compared to RMB23,786,000
(US$2,873,000) for the corresponding period in 1999. The decrease was mainly due
to a decrease in selling expenses as a result of a decrease in sales, and a
decrease in salary expenses as some of the staff was transferred to the JV
Partner.
INTEREST INCOME/EXPENSE. Interest expense for the first half of fiscal
2000 decreased by RMB671,000 (US$81,000) or 35.5% to RMB1,219,000 (US$147,000),
compared to RMB1,890,000 (US$228,000) in the corresponding period of the prior
year. The Company has financed its acquisition of property, machinery and
equipment in the fiscal 2000 by capital leases totaling RMB18,314,000
(US$2,212,000). Although there was a decrease in interest expense in the first
half of fiscal 2000 on notes payable, resulting from the decrease in average
bank borrowing rates and outstanding notes payable, it was partially offset by
the interest expense arising from the capital lease obligations. Interest income
for the first half of fiscal 2000 was RMB138,000 (US$17,000) which was
comparable to RMB130,000 (US$16,000) in the corresponding period of the prior
year.
OTHER INCOME/(EXPENSES), NET Other income for the first half of 1999
amounted to RMB653,000 (US$79,000), and mainly represented income received on
rental of machinery to certain related parties. Expenses recorded by the Company
for the first half of 2000 amounted to RMB1,522,000 (US$184,000), and mainly
arose from a sales return by a customer.
INCOME TAXES. Pursuant to an approval issued by the State Tax Bureau of
the Liuzhou City dated July 22, 1966, the income of the JV is fully exempted
from Chinese national income tax for three years commencing from first
profitable year of operations in 1995 followed by a 50% exemption for the next
four years, after which the income is taxable at the full rate of 30% exclusive
of local income tax of 3%. The JV is also exempt from the local income tax rate
throughout the term of the joint venture. However, the National Tax Bureau has
revoked the preferential rate approval in 2000 such that the income of the JV is
only fully exempted from Chinese national income tax for two years commencing
from first profitable year of operation in 1995 followed by a 50% exemption for
the next three years, after which the income is taxable at the full rate of 30%
exclusive of local income tax of 3%. Accordingly, the Company has made
additional provisions in the current year for the income taxes assessed for
fiscal year 1997.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES AND GROSS PROFIT. Net sales for the second quarter of fiscal
2000 decreased by RMB4,618,000 (US$558,000) or 10.2% to RMB40,447,000
(US$4,885,000), compared to RMB45,065,000 (US$5,443,000) for the corresponding
period in 1999. The decrease was mainly due to the Company's relocation to new
production and office facilities in early 2000, which were not operated at full
capacity during the quarter. During the second quarter of fiscal 2000, the
Company sold certain inventories to the JV Partner at their carrying value which
amounted to RMB15,041,000 (US$1,817,000).
8
<PAGE>
Gross profit decreased by RMB12,575,000 (US$1,519,000) or 65.3% to
RMB6,682,000 (US$807,000) for the second quarter of fiscal 2000 compared to
RMB19,257,000 (US$2,326,000) in the corresponding period of the prior year. The
decrease was mainly due to the decrease in sales during the current period and
inventory sales to the JV Partner which were made at their carrying values.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the second quarter of fiscal 2000 decreased by RMB2,643,000
(US$319,000) or 21.8% to RMB9,502,000 (US$1,148,000), compared to RMB12,145,000
(US$1,467,000) for the corresponding period in 1999. The decrease was mainly due
to a decrease in selling expenses as a result of a decrease in sales, and a
decrease in salary expenses as some of the staff were transferred to the JV
Partner.
INTEREST INCOME/EXPENSE. Interest expense for the second quarter of
fiscal 2000 decreased by RMB668,000 (US$80,000) or 70.5% to RMB279,000
(US$34,000), compared to RMB947,000 (US$114,000) for the corresponding period of
the prior year. The Company has financed its acquisition of property, machinery
and equipment in fiscal 2000 by capital leases totaling RMB18,314,000
(US$2,212,000). The decrease in interest expense in the second quarter of fiscal
2000, resulted from the decrease in average bank borrowing rates and a reduction
in outstanding notes payable, which was only partially offset by the interest
expense arising from the capital lease obligations. Interest income increased
from RMB45,000 (US$5,000) for the second quarter of fiscal 1999 compared to
RMB130,000 (US$16,000) for the corresponding period of fiscal 2000. The increase
was due to an increase in average bank balances during the current period.
OTHER INCOME/(EXPENSES), NET Other income for the second quarter of
1999 amounted to RMB256,000 (US$31,000), and mainly represented income received
on rental of machinery to certain related parties. Expenses recorded by the
Company for the second quarter of 2000 amounted to RMB1,492,000 (US$180,000),
and mainly arose from a sales return by a customer.
INCOME TAXES. See discussion of income taxes under comparison of six
months ended June 30, 2000 compared to six months ended June 30, 1999.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund inventories, accounts
receivable and capital expenditures. The Company has financed its working
capital requirements through a combination of internally generated cash, short
term bank loans and advances from affiliates.
The Company had a working capital surplus of RMB54,489,000
(US$6,581,000) as of June 30, 2000 compared to RMB58,930,000 (US$7,117,000) as
of December 31, 1999. Net cash used in operating activities for the six months
ended June 30, 2000 was RMB4,836,000 (US$584,000) as compared to net cash
provided by operating activities of RMB7,784,000 (US$940,000) for the
corresponding period in 1999. Net cash flows from the Company's operating
activities are attributable to the Company's income and changes in operating
assets and liabilities.
The Company's additions to property, machinery and equipment for the
first half of fiscal 2000 were RMB25,325,000 (US$3,059,000), of which 18,314,000
(US$2,212,000) was financed by capital leases.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1999. The Company believes
that internally generated funds together with available bank credit, will be
sufficient to satisfy its anticipated working capital needs for at least the
next twelve months.
YEAR 2000 ISSUE
The Year 2000 issue is the result of information technology systems and
embedded systems using a two-digit format, as opposed to four digits, to
indicate the year. The Company and its subsidiaries use a limited amount of
computer software primarily in connection with their accounting and financial
reporting systems. Such programs have been upgraded so that they are year 2000
compatible. In addition to software issues, certain of the computer hardware of
the Company and its subsidiaries have been replaced with more current
technology.
As of June 30, 2000, the Company has not experienced any disruptions or
failures to its normal operations as a result of the transition into calendar
year 2000.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
NONE
ITEM 2. CHANGES IN SECURITIES:
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (Electronic filing only).
(b) During the three months ended June 30, 2000, the Company filed no current
Reports on Form 8-K.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OVM INTERNATIONAL HOLDING CORP.
August 16, 2000 By:/s/ Ching Lung Po
----------------------------------
Ching Lung Po, President
By:/s/ Deng Xiao Qiong
-----------------------------------
Deng Xiao Qiong, Principal Financial
and Accounting Officer
12
